Gulf buyers eye future purchases of Lockheed's F-35 jet

DUBAI Gulf buyers are nearing decisions to buy more current generation fighter jets, but the buzz at the Dubai Airshow was about Lockheed Martin Corp's (LMT.N) radar-evading F-35 fighter - a plane not yet operational and not even on display there.

The U.S. government sent a big delegation to this year's show, eager to reassure Gulf leaders about their continued commitment to the region despite policy differences over Syria and Iran and signs that Egypt is looking at buying Russian weapons after a slowdown in U.S. military aid.

For the first time, U.S. government and industry officials also spoke about the process under way to allow the sale of the Lockheed jet to the Gulf - probably about five years after Israel receives its first F-35 fighter jets in 2016.

One Gulf source familiar with the region's defense market said the F-35 was generating a degree of excitement even before any U.S. decision to allow its sale to Gulf buyers.

The possibility that the F-35 aircraft might become available could explain why Gulf countries are taking their time with decisions on purchases of other fighters, the source said.

Heidi Grant, U.S. deputy assistant secretary of the Air Force for international programs, said Gulf buyers were focused on buying additional fourth-generation jets but were clearly interested in the F-35 - a so-called "fifth-generation" warplane that is designed to be nearly invisible to enemy radar.

"They're just asking me to monitor it, and when it becomes available let (them) know," Grant told Reuters in an interview. "They understand that we haven't made a policy decision to open up in this region right now."

COMPETITIVE EDGE

Grant said she continued to press for a release of the F-35 technology to the Gulf region, but was also at pains to stick to U.S. military policy.

"I'm constantly telling the partners in the region that as their advocate, I'm pushing (other officials) to look at it," she said, underscoring the growing importance of building coalitions in the region and using common equipment.

In addition to U.S. policy guidelines that call for Israel to maintain a competitive military edge, the U.S. government always reserves certain capabilities for its own use, Grant said. At the same time, Washington also wants its partners to be ready to help conduct coalition operations.

Boeing Co's (BA.N) F-15 and Lockheed's F-16 were approved for sale to Gulf countries about five years after Israel.

U.S. military sales are handled on a government-to-government basis, and decisions about releasing sensitive technologies are made by a committee that includes the Pentagon, State Department, Commerce Department and other agencies, depending on the technology in question.

U.S. officials say the United Arab Emirates (UAE) has rapidly evolved to become the most capable and reliable U.S. partner in the Gulf region. Washington recently approved the sale of $4 billion worth of munitions to UAE, as well as an advanced missile defense system built by Lockheed.

The $392 billion F-35 JSF, the Pentagon's biggest arms program, has seen a 70 percent increase in costs over initial estimates and repeated schedule delays, but U.S. officials say the program has made progress in recent years. The U.S. Marines Corps says it is on track to start using the plane in mid-2015.

Lockheed is building three models of the F-35 for the U.S. military and eight countries that helped fund its development: Britain, Canada, Norway, Denmark, Australia, Italy, Turkey and the Netherlands.

Israel and Japan have also placed orders, and South Korea is expected to announce its plans to buy F-35s on Friday.

"There's demand," Patrick Dewar, executive vice president of Lockheed's international unit, told Reuters. "There have been multiple countries - and there will be more - that are requesting a date certain when F-35 will be released to them, and the U.S. government has that on their to-do list."

"LET'S DELAY IT"

Dewar said the U.S. government had provided publicly available information to potential Gulf buyers but no classified briefs had yet been provided to his knowledge.

He said the F-35 is a multi-role fighter that was designed to replace the F-16, the F/A-18 and many other warplanes.

"Any air force that currently flies those jets has an expectation - and should have an expectation - that in the future at some time, the United States would release the F-35 to replace those jets," Dewar said.

He said Lockheed was working with the U.S. government to ensure its release policy was in synch with the planning process required by each of the governments for big arms deals.

Carrol Chandler, a senior executive with engine maker Pratt & Whitney, told Reuters earlier this week there was strong interest in the plane, but it would likely be several years before exports to the Gulf were approved.

One U.S. source familiar with the world fighter market said countries like the UAE and Saudi Arabia that currently operate several types of fighters were more likely to buy other currently available jets in the interim. But countries with single-fighter fleets like Kuwait could decide to wait for the F-35 to become available, said the source.

Advanced as it is, the F-35 Lightning must contend with competition from European manufacturers and Boeing Co, which tout the benefits of their jets compared with the F-35, and raise questions about the schedule for the Lockheed jet.

French firm Dassault's (AVMD.PA) Rafale jets and the BAE Systems (BAES.L)-backed Eurofighter Typhoon are in a tight race to win a deal for at least 60 new aircraft to replace the UAE's Mirage fleet. UAE is also looking at buying 25 more Lockheed F-16s as well as upgrades for its existing jets.

The Eurofighter, built by Britain's BAE, EADS EAD.PA and Italy's Finmeccanica (SIFI.MI), is being marketed by BAE, which is chasing deals in Saudi Arabia, Qatar and Bahrain.

Douglas Barrie of the International Institute for Strategic Studies in London said Lockheed could be trying to stall any European purchase to buy time to complete development of the F-35, and get through the U.S. approval process.

In past competitions "when they looked like they weren't going to win with their current offering ... the strategy process went from 'Let's win this' to 'Let's delay it'," he said.

"The delay arguably was about getting the decision point to where you could put the F-35 on the table and say 'Why don't you buy the Lightning?'"